How to Price SaaS with Paul Lynch, Chargify8 min read
You don’t want anything getting in the way of attracting new customers, especially not price.
Many businesses focus a lot of their time, resources and efforts around their marketing funnel, around their sales funnel, around their general organisational charts. Pricing, specifically to win within SaaS, is under-invested.
There’s no one-size-fits-all approach to pricing, but there are definitely some key rules B2B SaaS businesses need to adhere to.
Paul Lynch, CEO of Chargify, shared a rule of three on pricing your SaaS, in our How-To series:
1. Know your market
Are you competing against tools that have a longer sales cycle, a higher unit cost and are more integrated into the stack?
2. Know your competitors
Are you a price leader or are you a price follower in your market? No one likes to be a price follower. We all want to disrupt.
3. Know your value
Are you pricing too low? If you price in a market at $1, the perception is going to be that you’ll deliver a dollar’s worth of value.
Watch the full video on our YouTube channel, for more details. You can read the full transcript of this video below.
Welcome to the SaaStock how to series in which we aim to answer questions posed by our community and give you three actionable takeaways. I’m Alex Theuma, CEO of SaaStock, which helps SaaS companies get traction growth and scale through our conferences, community, and content. Today I’m delighted to be joined by Paul Lynch, CEO of Chargify. How’s it going, Paul?
Alex? How are you doing here? Great to be here, thank you so much for the invitation.
That’s all right, great to see you here, one week after SaaStock remote and also the snowstorms in Texas. Who’d have thought? Not one week after SaaStock remote we’d have snowstorms.
One was really, I think they were both very memorable, one for all the wrong reasons, and one for all the right reasons. Congratulations on a really good conference. I know you guys have challenges like the rest of us with this whole COVID thing. So, look, well done on putting it together. I mean, I know we got a lot out of it. I all the other attendees did too.
Thanks Paul. Yeah. As you say, with virtual events, we’re certainly all doing, learning as we go doing as best as we can, but we’re looking forward to those pints in Dublin, again, and more, and just being with everybody again in the future. Can’t wait for that.
You wouldn’t need to. Absolutely, man.
I’ll be buying the pints when we’re in Dublin. So, Paul, the question asked by our community is how to price the SaaS. And we’d ask that question to you because we know Chargify are doing a lot around this topic at the moment.
So yeah, I mean, I think it’s an area which we see a big gap in the market around. It’s an area where we see a lot of businesses focus, a lot of their time, resources and efforts around their marketing funnel, around their sales funnel, around their general org charts and the whole area of pricing and pricing specifically to win within SaaS is under invested. I mean, I’m not going to go as far as saying that it’s an area where they spend like a couple of minutes on, they go in and they benchmark against their competitors, but it’s not miles off being that right now. So for us, there’s no magic wand in terms of defining what the right pricing strategy is for you to win in your individual sort of SaaS sector. Okay. But there are a couple of, sort of, prevailing rules that I think you should adhere too.
There are rules to be, on a general business perspective and not just a pricing or SaaS business perspective. What I feel they’re particularly applicable to SaaS and you know, to go with the classic rule of three: 1) Know your markets. 2) Know your competitors. And 3) Know your value. Okay. So on the first one in terms of know your market, okay, where are you competing? Okay. Are you competing against FinTech tools that have a longer sales cycle, that have a higher unit cost and are more integrated into the stack? Are you competing against developer tools? Are you in a highly competitive market? Are you in a niche market? Okay. All the things, all of these specific points in terms of the market that you’re operating in will have huge variants and bearings in terms of how you price.
Okay. For Chargify as a FinTech tool, we would have very low churn. We would have a high customer engagement right across the org chart. For previous companies like say Assembler, which was a source code management tool. It was in a very highly competitive area with a dominant category king, like GitHub. So these things all have a high input in terms of how you price.
And the second one, know your competitors, are you in a highly competitive market? If you’re in a highly competitive market, is there a category king in this market that defines what the price should be? And can you disrupt? Okay. So very, very important. Are you a price leader or are you a price follower in your market? No one likes to be a price follower. We all want to disrupt. We all want to be able to put our flag down. Disrupting in a market on price is not around being lowest. Very important. And the quickest path for you to fail in any business is trying to be, is becoming a lost leader in a market that is focusing on value as opposed to price, which brings me to the last one.
Again, very important, know your value. We call it the founder’s dilemma, where they underestimate their value. Very often we find businesses are priced too low. If you price in a market at $1, the perception is going to be that you’ll deliver a dollars worth of value. If that’s not the case, then you need to get your price and your positioning correct. Put yourself on the bottom shelf. Like in terms of the liquor store, people are going to presume that you’re selling gut rot. You might be the top shelf up there with your Crystals and your high end champagnes, but know where your value is in the market.
And lastly, to marry price to billing. Okay. What is the prevailing model in your market that’s winning? Are people building on a uedsage basis, meter basis? Are they billing on an event basis? How are people billing? Is it just pure standard subscription, billing, and modeling, or is there a higher, more complex sort of billing around it?
So for me, when I look at this area of billing and particularly usage 20 years ago, the concept of having non-predictable non-forecast or guaranteed contract back revenue, was unthought of in terms of, doing a raise, getting debt, anything like this. You look at it now, seven of the last sort of 11, 12 successful tech IPOs have been businesses that have non-predictable revenue and billed specifically on usage. I include IPO’s like Snowflake, which is one of the biggest we’ve ever seen. So when it comes to pricing, again, to reiterate on the three, market, competitor, value. Are you a price leader? Are you a price follower? Does your business have the ability to disrupt? And if it does have anybody to disrupt, is pricing an area to disrupt in. And on value, don’t go to the market. To disrupt the market, one doesn’t need to go in super, super cheap. Amazon, when they launched AWS back in 2006, their price was like for a non-reserved instance above the market norm, but they demonstrated real value, which had never been demonstrated before. So is that where your product can come in and disrupt? Your value-based pricing as opposed to your low pricing? Yeah.
Awesome. Well, Paul, thanks so much for answering that question. How to price SaaS. Really appreciate it. Where can people find more about Chargify online?
Yeah. Come, come to us. ww.chargify.com. I’m Paul Lynch. I’m the CEO hit me up on LinkedIn. We’re super geeky, Alex, around these things. We love talking about them. Come and talk to us. We’re in all the usual places, we’re keen to talk to you guys. We focus on B2B SaaS. This is our jam, guys. If you’re looking for a general, just basic subscription company, we’re probably not for you. If you’re a B2B SaaS company and you’re looking to really get in, make an impression in terms of your market, come and talk to us. We’ll help you with your pricing strategy. We’ll help you with your billing. We’ll talk to you about the different models, the different stuff that’s working in the market. We’re here. We’re here to engage.
Awesome. Thanks so much, Paul, CEO, Chargify.
Thanks, Alex. All the best.
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